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Why Your Retirement Will Stink

Sorry about your bankrupt golden years!

Ah, well -- at least most of your life was fun, right? Until your unfortunate retirement, I mean. Now you're hoping to make some money delivering newspapers at age 75, and trying to eat on $40 a week. You're deciding between taking in a boarder or selling your home and moving into a small apartment. You're canceling your cable TV service with tears in your eyes.

What went wrong, you ask? Honestly, what didn't go wrong?

You didn't feed the piggy bankFor starters, you just didn't save enough for retirement. These numbers from the 2009 Retirement Confidence Survey reflect the total savings and investments (not including the value of primary residences and pension plans) of today's workers, by age group:

Retirement Savings

All Workers

25-34

35-44

45-54

55+

Less than $10,000

40%

53%

37%

36%

30%

$10,000-$24,999

13%

20%

16%

7%

6%

$25,000-$49,999

11%

12%

8%

11%

13%

$50,000-$99,999

12%

9%

14%

14%

10%

$100,000-$249,999

12%

5%

16%

15%

15%

$250,000 or more

12%

2%

9%

17%

26%

Source: Retirement Confidence Survey, April 2009.

If you were a typical working American at age 40, there's a good chance that your savings and investments totaled less than $25,000. Here's how your money would have grown if you earned the market's long-term average annual return of 10%:

Age 40: $25,000Age 50: $64,800Age 60: $168,200Age 65: $270,900

That might have seemed like a lot, but it wasn't enough. According to our Rule Your Retirement newsletter service, to make a nest egg last, you should plan to conservatively withdraw about 4% of it per year in retirement (increasing your withdrawal with inflation). A 4% chunk of $270,900 is $10,800 a year, or roughly $900 a month.

Of course, that didn't cover your needs, because you hadn't remembered to plan for health-care costs, travel expenses, and all your early-bird dinners. So you withdrew what you needed, and here you are, at age 75, with ... not much left.

Luckily for you, all is not lost.

It was all a terrible dream!Odds are, if you're reading this article, you're probably not 75 years old, nor do you have only pennies left in your retirement account.

But you may be thinking that your nest egg still isn't where it needs to be in order to eventually provide you with the retirement you want. Fortunately, you can probably still salvage your retirement.

First and foremost, save and invest more. If you're socking away 8% of your income into a 401(k), raise that to 10%, or even 12%. If you can do 15%, your retirement may be much rosier. Make the most of your 401(k) and your IRA -- Roth IRAs especially can be very powerful. (And don't cash out of your 401(k)!)

In addition, make sure you invest all that additional cash sensibly. A few dividend-paying stocks in your portfolio can provide income in retirement without reducing your precious principal, especially if they grow in value over the years. Your best bets will sport sustainable payout ratios and sturdy track records of revenue, earnings, and dividend growth.

To see just how much income dividend-paying stocks can add to your nest egg, consider what would happen if you divided $100,000 among the following eight dividend-paying stocks. I'm also including what the payouts would be in 10 years, if the dividends grow by 8% annually:

Company

Dividend Yield

Annual Payout

Annual Payout in 10 Years

Bristol-Myers Squibb(NYSE: BMY)

4.9%

$613

$1,323

Intel(Nasdaq: INTC)

3.0%

$375

$810

Philip Morris International(NYSE: PM)

4.6%

$575

$1,241

Coca-Cola(NYSE: KO)

3.3%

$413

$892

United Parcel Service(NYSE: UPS)

3.0%

$375

$810

Verizon(NYSE: VZ)

6.4%

$800

$1,727

Chevron(NYSE: CVX)

3.7%

$463

$1,000

Caterpillar

2.8%

$350

$756

Grand Total

$3,964

$8,559

Source: Yahoo! Finance.

You're never too lateDon't buy into stupid retirement myths, such as the idea that it's too early or too late to save for retirement, or that retirement planning is hard. It's surprisingly easy to estimate how big a nest egg you'll ultimately need. If you plan on a 4% withdrawal rate, just take the initial annual payout you want and multiply it by 25. If you'd like to withdraw $50,000 annually, for example, you'll want to amass $1.25 million.

And if you've come right down to the wire, you can still vastly improve your retirement by working just a few more years. You'll make more money that way, even as you delay drawing down your nest egg.

When it comes to your retirement, all is not lost -- provided you're willing to spend a little time planning ahead. We'd love to help with model portfolios and stock and fund recommendations, courtesy of our Rule Your Retirement newsletter. You can try it free for 30 days with no obligation.

Longtime Fool contributor Selena Maranjian owns shares of Coca-Cola.Intel and Coca-Cola are Motley Fool Inside Value choices. Philip Morris International is a Motley Fool Global Gains selection. Coca-Cola and United Parcel Service are Motley Fool Income Investor picks. The Fool has created a covered strangle position on Intel. Motley Fool Options has recommended buying calls on Intel. The Motley Fool isFools writing for Fools.

Author

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter... Follow @SelenaMaranjian